One lender is all you need, and you may or may not end up working with that lender.

A mortgage pre-approval is the same as an approval in the sense that both involve a check of your finances and your credit. Pre-approval is something less than approval, however, because the property value is preliminary and won’t be definitively established until you have a purchase contract. Furthermore, a pre-approval may not specify a mortgage price, and if it does specify a price, it is not binding on the lender.

So what exactly is it? It is a statement of opinion by a lender that a prospective buyer has the income, assets and credit to carry the mortgage required to purchase a house of some assumed value. Since the borrower’s mortgage-carrying capacity depends on an interest rate that is not yet known, and since the price of the house is preliminary, a pre-approval has a lot of slack.

It is adequate, however, for the purpose for which it is intended. That purpose is to convince a home-seller that a prospective buyer has the means to make the purchase and should therefore be taken seriously.

The only reason for you to obtain a pre-approval is because the owner of the house you want to purchase is looking for you to have one. More than one would serve no purpose.

Why do lenders offer them? Their hope is that the purchaser will view the pre-approval as the first step in obtaining a loan. It is a way of generating a promising lead. But you should not view it that way.

Selecting a lender for no other reason than that the lender had issued you a pre-approval, would be a mistake.

On the other hand, there is no reason to exclude that lender from your search for a loan provider. If your experience with the pre-approval was favorable, and if you are having difficulty making a decision among loan providers, you might want to give the lender providing the pre-approval an edge over the others seeking your loan.

Copyright Jack Guttentag 2006